Dallas, Texas-based Brinker International Inc. (EAT) reported adjusted earnings per share of 60 cents in the third quarter of 2012, beating the Zacks Consensus Estimate of 56 cents and the year-ago level of 47 cents per share.
On a GAAP basis, reported earnings stood at 56 cents per share versus 45 cents per share in the year-ago quarter.
Total revenue, excluding gift card brokerage adjustment of $5.2 million, increased 4.2% year over year to $747.2 million, due to a 4.2% rise in system-wide comparable restaurants sales.
Quarter Performance
Chili’s Grill & Bar restaurant reported revenue of $629.9 million, up 3.5% year over year while Maggiano’s sales perked up 3.4% to $94.7 million in the reported quarter. Royalty and franchise revenue crept up 1.8% to $17.4 million, driven by year-over-year unit growth.
Comparable restaurant sales at Chili’s Grill & Bar restaurant were up 4.6% for the fourth consecutive quarter; benefiting from a 1.8% rise in traffic, 1.9% hike in menu price and 0.9% increase from mix shift. Same-restaurant sales at Maggiano’s climbed 3.9% for the ninth time in a row; driven by higher traffic (up 1.5%), menu price (up 2.2%) and mix-shift (up 0.2%).
Comparable restaurant sales at franchised domestic restaurants and franchised international restaurants grew 3.8% and 2.6%, respectively.
Restaurant operating margin excluding card brokerage adjustment, expanded 100 basis points (bps) year over year to 19.3%. Despite the food cost inflation, margins at Chili enhanced on labor savings initiatives and lower restaurant expense. Restaurant margin at Maggiano’s improved mainly on lower cost of sales and sales leverage on fixed costs related to higher revenue, partially offset by commodity pressure.
The restaurant company reported adjusted tax rate of 28.9% during the quarter compared with 27.1% in the third quarter of 2011. Interest expense decreased $0.6 million year over year due to lower interest rate.
Financial Position
At quarter end, the company had current assets of $202.4 million and shareholders’ equity of $333.7 million. During the third quarter, the company repurchased 3.1 million shares for approximately $82.7 million.
Outlook
The owner and operator of Chili’s Grill & Bar and Maggiano’s Little Italy restaurants reaffirmed its adjusted earnings guidance range of $1.80 to $1.95 for fiscal 2012. The company continues to expect full-year revenues and comparable restaurant sales to increase 2-3% year over year.
Unit Update
During the quarter, the company closed 6 Chili’s restaurants and opened 6 international franchise restaurants.
At the end of the quarter, Brinker operated 1,574 restaurants, of which 1,282 were Chili’s, 44 Maggiano’s and 248 franchised restaurants in the international market. Of the 248 franchised restaurants in the international market, 247 are Chili’s restaurants and one Maggiano’s.
In 2012, Brinker plans to open 37 to 39 restaurants of which 33 to 35 units will be international franchises and 4 Chili’s store by domestic franchises.
Our Take
Brinker remains on track to double its EPS by 2015, driven by margin expansion through disciplined cost management and fifth consecutive quarter of positive comps and traffic growth. To attract customers, the company continues to focus on its value offerings like lunch combo, Happy Hour program and two-course meals for $20 at Chili’s and classic pasta Marco’s Meal for Two at Maggiano’s.
Additionally, the company is boosting shareholder value through share repurchases as well as dividend payment. However, stiff competition and food cost inflation are expected to remain headwinds for the company. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $1.88 and $2.18, respectively.
Brinker, which competes with BJ’s Restaurants, Inc (BJRI), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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